document.write( "<A HREF=/cgi-bin/jump-to-question.mpl?question=1198979>Question 1198979</A>: <I><SPAN STYLE=\"word-break: break-all;\"> Alec inherited ₱1,000,000 from his grandparents. He planned<BR>\n" );
document.write( "to invest it for his future. He was offered a 45% ownership and the other<BR>\n" );
document.write( "one is 6.5% bond of the fast food chain that will be built on their local area. Help Alec decide by illustrating to him the two options with the different<BR>\n" );
document.write( "successful rate </SPAN>\n" );
document.write( "</I><HR><TABLE width=100%><TR><TD><B><A HREF=http://www.algebra.com/>Algebra.Com's</A> Answer #848289 by </B><A HREF=/tutors/aboutme.mpl?userid=CPhill><B>CPhill(1959)</B></A><img src=\"/images/stars/stars-12.gif\" alt=\"\" >&nbsp;<A HREF=/tutors/aboutme.mpl?userid=CPhill><IMG SRC=http://www.algebra.com/images/aboutme-small.gif BORDER=0 alt=\"About Me\" VALIGN=MIDDLE></A>&nbsp;<IMG SRC=http://www.algebra.com/cgi-bin/show-face.mpl?user=CPhill><BR>You can <A HREF=\"/cgi-bin/embed-solution.mpl?show=1&solution=848289\">put this solution on YOUR website!</A><BR><SPAN STYLE=\"word-break: break-all;\"> To help Alec decide between the **45% ownership** and the **6.5% bond**, we analyze and illustrate both options under different scenarios for the success of the fast food chain.\r<BR>\n" );
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document.write( "### **Option 1: 45% Ownership**<BR>\n" );
document.write( "- Alec would own 45% of the fast food chain's profits (or losses).<BR>\n" );
document.write( "- The future value of this option depends on the success of the business.<BR>\n" );
document.write( "- Define success rates with corresponding projected annual profits for the business:<BR>\n" );
document.write( "  - **High success**: Annual profit = ₱3,000,000.<BR>\n" );
document.write( "  - **Moderate success**: Annual profit = ₱1,500,000.<BR>\n" );
document.write( "  - **Low success**: Annual profit = ₱500,000.<BR>\n" );
document.write( "  - **Failure**: Annual profit = ₱0.\r<BR>\n" );
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document.write( "Alec’s share in profits is:<BR>\n" );
document.write( "\[<BR>\n" );
document.write( "\text{Alec's profit} = 0.45 \times \text{Business Annual Profit}<BR>\n" );
document.write( "\]\r<BR>\n" );
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document.write( "#### **Ownership Illustration**<BR>\n" );
document.write( "| Success Level | Business Annual Profit (₱) | Alec's Share (₱) |<BR>\n" );
document.write( "|---------------|-----------------------------|------------------|<BR>\n" );
document.write( "| High          | 3,000,000                   | 1,350,000        |<BR>\n" );
document.write( "| Moderate      | 1,500,000                   | 675,000          |<BR>\n" );
document.write( "| Low           | 500,000                     | 225,000          |<BR>\n" );
document.write( "| Failure       | 0                           | 0                |\r<BR>\n" );
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document.write( "### **Option 2: 6.5% Bond**<BR>\n" );
document.write( "- A bond offers a guaranteed annual return of **6.5%** on Alec’s ₱1,000,000 investment.<BR>\n" );
document.write( "- Annual return:<BR>\n" );
document.write( "\[<BR>\n" );
document.write( "\text{Annual Bond Return} = 0.065 \times 1,000,000 = 65,000 \, \text{₱ per year}.<BR>\n" );
document.write( "\]<BR>\n" );
document.write( "This is a **fixed income** regardless of the success of the business.\r<BR>\n" );
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document.write( "#### **Bond Illustration**<BR>\n" );
document.write( "| Success Level | Alec's Annual Return (₱) |<BR>\n" );
document.write( "|---------------|---------------------------|<BR>\n" );
document.write( "| High          | 65,000                   |<BR>\n" );
document.write( "| Moderate      | 65,000                   |<BR>\n" );
document.write( "| Low           | 65,000                   |<BR>\n" );
document.write( "| Failure       | 65,000                   |\r<BR>\n" );
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document.write( "### **Comparison of Both Options**<BR>\n" );
document.write( "#### **1. Summary of Returns**<BR>\n" );
document.write( "| Success Level | Ownership Share (₱) | Bond Return (₱) | Which is Better?         |<BR>\n" );
document.write( "|---------------|-----------------------|-----------------|--------------------------|<BR>\n" );
document.write( "| High          | 1,350,000            | 65,000          | Ownership significantly better |<BR>\n" );
document.write( "| Moderate      | 675,000              | 65,000          | Ownership still better    |<BR>\n" );
document.write( "| Low           | 225,000              | 65,000          | Bond better              |<BR>\n" );
document.write( "| Failure       | 0                    | 65,000          | Bond significantly better|\r<BR>\n" );
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document.write( "### **2. Risk and Reward Analysis**<BR>\n" );
document.write( "- **Ownership (45%)**:<BR>\n" );
document.write( "  - High risk: Alec's returns are dependent on the business's performance.<BR>\n" );
document.write( "  - High reward: Substantial earnings if the business succeeds.\r<BR>\n" );
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document.write( "- **Bond (6.5%)**:<BR>\n" );
document.write( "  - Low risk: Provides guaranteed returns regardless of business performance.<BR>\n" );
document.write( "  - Lower reward: Fixed annual income of ₱65,000, which is small compared to potential high returns from ownership.\r<BR>\n" );
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document.write( "### **Recommendation for Alec**<BR>\n" );
document.write( "- If Alec is **risk-averse** and prefers stability, he should invest in the **6.5% bond** for consistent and guaranteed returns.<BR>\n" );
document.write( "- If Alec is **risk-tolerant** and believes strongly in the business's success, the **45% ownership** is a better choice, as it offers potentially high returns in the long run.<BR>\n" );
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